VALUE ADDED TAX2 TYPES OF TAXES1. DIRECT TAX: burden of payment cannot be shifted unless stipulated by the parties2. INDIRECT TAX: burden of taxation can be passed on to the consumer notwithstandingstipulations between the partiesVAT1. VAT is not a tax on person or property but it is a tax on privilege of selling. It is in thenature of excise tax therefore.2. VAT is also an ad valorem tax because the tax base is based on the value of the sellingprice or product being sold bartered leased or exported.!. VAT is an indirect tax. VAT can be shifted to the buyer. An exception to this is if thebuyer is exempt from tax. In this the seller cannot shift the tax.OUTPUTVAT: VATimposedonsaleof goods or services andthus it is theVATbeingtransferred to the customer. Anyfact that pertains totransactionof sellingiscalled"#T$#TVAT.It isaVATimposed on the seller then. INPUT VAT: VAT paid by consumerCREDIT METHOD: %xcess input VAT during the taxable period &called the Creditable InptVAT' can be used to set off any output VAT during the next succeeding taxable period.EXAMPLE! A sold a bag to ( and ( sold the bag to ). All of them are VAT registered individuals.The selling price of A to ( is 1**+. Thus 12, of 1**+ is 12+. 12+ therefore is the VAT that Awill pay. &-ote that the VAT here is called "#T$#T VAT because A is the seller'. (ut A can shiftthis burden to ( when he sells the bag. Thus ( will pay 112+ for the bag. The 12+ will beincluded as part of the purchase price. -ow ( sold the bag to ) for 2**+. The VAT now is 2.+which ( should pay. (ut he shifts the burden to ) thus ) paying 22.+ pesos. &-ote again that the2.+ here is called output VAT because ( is the seller.' /#%0TI"-: 1I22 ( $A3 A-3 I-$#TVAT43%0. (ecause at the time that ( had purchased the bag from A ( shouldered a certainVAT component in the amount of 12+ and since this VAT arose from the purchase of goods orservices then you call that I-$#T VAT &the 12+'. Thus ( will not pay 2.+ "#T$#T VAT butonly 12+ VAT $A3A(2% to the government because he can utili5e the I-$#T VAT to lessen theamount of "#T$#T VAT.If ) is not engage in business or services can he utili5e the amount of I-$#T VAT4 -o. (ut ifhe is engaged in service or business he can utili5e I-$#T VAT he paid provided he also sells thebag.CREDIT METHOD EXPLAINED!6uringthetaxable periodof ( heincurred"#T$#TVATamountingto2.+andincurred I-$#T VAT amounting to ..+. I-$#T VAT is higher in this case.Thus ..+ minus 2.+is e7ual to 2* + excess of I-$#T VAT. And again excess of I-$#T VAT is called )8%6ITA(2%I-$#T VAT &here the 2*+'. /uestion: is 2*+ a vat payable on the part of (4 -o. There is onlyVAT payable if the "#T$#T VAT is more than I-$#T VAT. If I-$#T VAT I0 9I:9%8 than"#T$#T VAT there is no VAT $A3A(2%. Instead you call that amount )8%6ITA(2% I-$#TVAT &)IV'. 0o can ( ma+e use of the )IV4 3es during the next succeeding taxable year. 0o how will ( ma+e use of the )IV4 If during the next succeeding taxable period there is"#T$#T VAT in the amount of 2*+ and I-$#T VAT in the amount of 1*+. VAT payable thenhere is 1*+. (ut will ( pay the amount of 1*+4 -o because he can use the )IV in the amount of2*+ to set off the liability.And in fact after setting off there is still an excess of 1*+ )IV. And hecan still use this in the next succeeding taxable period.-"T%0: VAT is a business tax. It is a tax imposed to a taxpayer if he is engaged in business. If heis not engaged in business he is not liable for VAT. (#0I-%0 TA;%0a. VATb. $ercentage Taxc. %xcise tax: -ot in the general classification but excise tax here pertains to sin tax. VAT: Imposed if :ross 0ales of :ross 8eceipts exceeds the threshold amount &and this isdependent on the time the income is earned.' 2*11: threshold amount is 1